Social impact bonds (SIBs) are a mechanism to attract private investment in the social sphere on a pay-for-success basis in the form of a multilateral contract between the government, an investor and a service provider.

How it works in Russia

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Beneficiaries

2. Private investors (funders) 4. Delivery of services Independent evaluator (operator) 3. Not-for-profit organisation (service provider) 1. Federal / regional executive authorities (public sector commissioner)

SIBs are unique in that the SIB project is fully financed by private investors. Repayment from the government to investors is contingent on the achievement of specified social outcomes as confirmed by an independent evaluation, which makes SIBs compare favourably with providing traditional public financing or outsourcing social services to the private sector.

SIB initiatives across the world

  • Public safety

Implemented eight years ago in the United Kingdom, the world’s first SIB was designed to reduce reoffending among prisoners. In addition to good education and work programmes, 2,000 offenders were provided with mental health support; while prison officers helped them to become more self-disciplined and responsible and find employment. The service provider also continued to help offenders for a period of up to 12 months after their release. An independent evaluation found that the SIB had reduced reoffending in the community by 9%.

  • Education

Goldman Sachs and United Way of Salt Lake carried out a study in 2010 to find that high-quality preschool education helped at-risk children to avoid future special education. The SIB project involved United Way, as the service provider for vulnerable children from low-income families; the investor providing funding of USD7mn for the programme; and the local government, as the commissioner. The social outcomes of the project were well above the target: only one of the 110 vulnerable children was assigned to publicly funded special education. The other kids continued to study under regular preschool education programmes. The positive social outcomes for the beneficiaries included higher school readiness, improved leadership abilities and better academic performance. Based on Utah’s special education add-on of USD2,607 per child per year, the government’s savings were USD281,550.

  • Healthcare

A pilot project was implemented in Fresno, California, to reduce asthma-related emergency department visits. The SIB covered 200 children from low-income families. The Robert Wood Johnson Foundation invested USD660,000 to launch the SIB for the government’s savings of USD5,000 per child per year under the asthma management programme.

Families of children with asthma received in-home medical and advisory support or, if necessary, monthly telephone calls and were provided with necessary medication and first-aid training. They also received high-efficiency filter vacuums, hypoallergenic pillow cases and fragrance-free cleaning supplies, which created the best possible conditions for preventing the development of asthma.

According to an evaluation of the project’s social and financial outcomes, the target was met. The SIB achieved a 30% reduction in emergency department visits and a 50% reduction in hospitalisation, with the government’s savings of USD5,000 per child per year. That is why it was decided that the SIB project should be expanded to 3,000 children with asthma.

Benefits of SIBs

For not-for-profit organisations

  • Project replicability
  • Expanded access to social services
  • Reliable financing over the course of project implementation
  • Increased partnership relations
  • Introduction of innovative techniques for achieving social outcomes

For investors

  • Performance-based investments
  • Socially responsible activities on a repayment basis
  • Contribution to positive social changes
  • Improved public relations due to the use of innovative financing mechanisms
  • Increased partnership relations

For regions

  • Budgetary financing contingent on confirmed outcomes
  • Optimised budgetary financing/budget savings
  • Additional instrument for accomplishing the national goals and strategic tasks specified in the Russian presidential decree
  • Regional job creation
  • Increased regional tax revenue
  • Development of the regional third sector

VEB.RF is a SIB operator in Russia

(in accordance with Resolution of the Russian Government No. 1491 of 21 November 2019)

  1. Specifying social outcomes: Specify the desired social outcomes, targets and financing jointly with the public sector commissioner.
  2. Searching for investors: Search for SIB investors and service providers.
  3. Organising the interaction: Organising the interaction between the public sector commissioner, investors and service providers.
  4. Providing project support: Coordinate project implementation, provide methodological support and ensure project monitoring.
  5. Providing regulatory support: Prepare drafts of SIB-related regulations of the Russian Government/constituent entity.
  6. Organising an independent evaluation: Organise an independent evaluation of social outcomes.

Resolution of the Russian Government No. 1491 of 21 November 2019

Resolution of the Russian Government No. 1491 of 21 November 2019 on the organisation of SIB pilot testing in constituent entities of the Russian Federation in 2019–2014 (Resolution 1491) is intended to implement the Concept for Improving the Efficiency of Public Budget Expenses in 2019–2024 (Ordinance of the Russian Government No. 117-r of 31 January 2019), whereby it is necessary to promote new mechanisms for public-private partnerships in the social sphere in order to safeguard the economic interests of private partners and attract private investment in social services, provided that Russian budgetary financing is contingent on the achievement of social outcomes. The service provider, however, receives upfront financing from the investor.

Resolution 1491 contains guidelines prepared by the Ministry of Finance in cooperation with VEB.RF and recommended for use by Russian constituent entities to organise SIB pilot testing in 2019–2024. The recommended guidelines provide a regulatory framework for the regional implementation of SIBs and contain a road map for preparing and carrying out SIB projects through the use of an innovative financing mechanism. This basically changes the scheme of performing and financing social services: budgetary financing is to be replaced by pay-for-success financing. Rather than payment for the process of delivering any results, public expenditures are performance-based investments and are contingent on the achievement of specified social outcomes.

Under Resolution 1491, VEB.RF will be the project operator throughout the course of SIB pilot testing in Russia until 2024 (paragraph 4).

The operator is responsible for SIB structuring, prepares the financial model (defines the methodology for calculating the performance metrics and subsidies), searches for investors, selects service providers, supervises the process of entering into contracts, monitors the project’s progress and organises an independent evaluation. The operator organises the interaction between all project participants and technically undertakes to ensure that the project is successful and that the participants fulfil their respective obligations.

GOVERNMENT OF THE RUSSIAN FEDERATION

RESOLUTION

No. 1491 of 21 November 2019

Moscow

On the Organisation of Pilot Testing for Social Impact Bonds in Constituent Entities of the Russian Federation in 2019–2014

In order to improve the efficiency and quality of public services (work) by using new instruments of financing for projects aimed at achieving social outcomes, the Government of the Russian Federation hereby resolves as follows:

  1. Approval shall be given to the accompanying regulations for organising pilot testing for social impact bonds in constituent entities of the Russian Federation in 2019–2024.
  2. The Ministry of Finance of the Russian Federation shall provide methodological support for the pilot testing of social impact bonds (“pilot testing”).
  3. It shall be recommended that the highest governmental executive authorities of constituent entities of the Russian Federation which take a decision on pilot testing should: apply the Regulations approved hereunder;
    determine the social impact bonds (SIBs) financed by project initiators, with subsidies provided from the budgets of constituent entities of the Russian Federation … .

Desired outcomes in various areas

Education: Reduce academic underachievement and increase school attendance, reduce the number of functionally illiterate children, improve involvement in the educational process and academic performance in general.

Healthcare: Reduce emergency hospitalisation and the need for inpatient care, improve disease prevention, reduce emergency department visits.

Social services: Reduce social isolation, reduce the number of children returned to children’s homes, provide social support for families of socially challenged children.

Unemployment reduction: Help the economically active population to receive/improve qualifications, prevent unemployment among migrants, the economically inactive population and different socially vulnerable groups.

SIB Financial Model

SIB projects do not involve additional public costs Traditional model SIB project Public social costs Public social costs SIB programme costs Investment yield rate Public cost savings

SIBs change the scheme of public functions in the social sphere. Therefore, we not only reduce public expenditures but also improve the efficiency of social services.

Russia’s first social impact bond

During the St. Petersburg International Economic Forum in June 2019, agreements were signed to launch the first pilot SIB in the Republic of Sakha (Yakutia). The project is scheduled for implementation in 2019–2022 and designed to improve schoolchildren’s academic performance. The project aims to improve the quality of general education, make human resources more competitive and transform the management mechanism of general education. About 5,000 children from 27 schools in the Khangalassky Municipal District will be covered by the project.

More detailed information can be found on the service provider’s website.

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