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It was announced this month that a significant portion of the investment lined up for the Peterborough social impact bond, to finance the mentoring and support of short-term release offenders, will no longer be used. About half the cash will remain in the bond and pay out on performance as planned, while the other half will never be called on.

The government has introduced a national mentoring and support programme for short-term prisoners, which is close enough to the nature of the intervention the bond is financing, to make it unfair to expect the bond to out-perform other services. Investors in the bond had their repayment tied to a comparative reduction in re-offending rates amongst ‘their’ released offenders – something that is now compromised by the government roll out.

For many, this will signify a let down for this flagship social impact bond and lead to a degree of caution from future investors. The ‘innovative’ form of finance did not complete as planned.

For me, this shows the sector fulfilling its role. The purpose of the Third Sector is not to operate mass-scale programming instead of government, but to translate services to local communities and, as in Peterborough, to innovate in order to inform government practice.

Now, in this particular case, some (many?) will argue that the government has a) screwed with the Peterborough model just when they are getting it right b) not given the trial enough chance to prove and improve itself and therefore (and most importantly) c) rolled out an intervention without enough thought or data about how to best do it. Putting these concerns aside, as a model, I think investors should be incredibly proud of the use of innovative finance to test something that has gone on to inform national policy.

‘Going to scale’ has come to be associated with the number of beneficiaries, staff or programmes an organisation has. In reality, it is about how far the ideas and models the organisation has developed are able to reach those it has the potential to benefit. At some point in the sector’s search for ‘sustainable’ models to grow organisations, this point seems to have been completely lost.

What’s interesting about Peterborough is that it wasn’t a simple case of grant-finance funds innovation, and innovation informs policy. No, in this case there were investors who wanted their money back. As such, many could say that the Bond was a failure because it did not absorb all the finance as planned. All that work lining up money, convincing investors, the due diligence costs… and we didn’t even use the full allotment of finance available.

Fortunately in this instance the investors were Foundations in the habit of making grants (grant = no money back/guaranteed 100% loss), so the chance to make some return (even if less than anticipated) and have a national policy influence is pretty amazing (providing they have the influence they wanted).

What’s interesting to consider, is whether more commercial investors would have deemed this to be a great failure – not getting fully invested after all the due diligence costs – and even tried to protect against this happening. The flow of mainstream investment into social finance should be encouraged, but we cannot ignore that a purely commercial investor would naturally guard information to ensure the success of their investment, rather than openly sharing best practice. That behaviour could have hindered the scaling of a model and programme that, done right, could have a transformative impact on reoffending rates nationally – less people in jail, less victims of crime, less cost to the tax payer.

While other impact bonds may be more straightforward, the over-arching aspiration of any investment in innovation should be to see ideas create high quality impact at scale. All investors in impact bonds should recognise this, lest we run the risk we protect our ideas and make more money next time.

*I wrote about this because I think it’s an interesting case study – any feedback/additions/different angles are welcome. Thanks to those who saw a first draft and guided me away from some inaccuracies/stupidities & one made up word.

Jake Hayman is the CEO of philanthropy research and advisory firm The Social Investment Consultancy – www.tsiconsultancy.com.

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