Social Impact Bonds

body_social-impact-bondsThe concept of Social Impact Investing has provided a useful framework for advancement in our schools – an individual, foundation or corporation invests in one of our schools and is able to link that investment to a well-defined and realized impact on the greater good in a community. In financial language, the Return on Investment (ROI) is a student or class of students that is academically prepared for the rigor of the next level of education and personally ready to contribute positively to the world. The dividend is all that is good and sacred in our life, the lives of others, and the world in which we all live; if that is the yield, it is difficult to ever say that the market had a down day.

This is an altruistic approach to philanthropy as the investor personally expects no monetary windfall in return for the investment. I was intrigued then to hear (possibly late to the discussion I must admit) about Social Impact Bonds in which a private investor can actually make money on an investment in a non-profit organization just as one might do in the for-profit markets. With a Social Impact Bond, a private investor contributes to a non-profit organization that has laid-out a specific set of outcomes for its program. For example, an investment of $1M might be made in a middle school program that educates underserved students from low-income families with an expectation that 90% of the students enrolled in the middle school will graduate from high school and enroll in post-secondary program by a certain year. The government joins the investor and non-profit organization as the third party in this Social Impact Bond. If the expected impact is realized or exceeded, then the government will pay the investor back in full plus a dividend.

In theory, if the non-profit accomplishes what it set out to accomplish, all three parties come out ahead: 1) the investor is up and hopefully confident enough in the social market to reinvest; 2) the non-profit program has access to the funding and resources to sustain its mission; and 3) the government is supporting an effective program with successful outcomes and actually saves money in the long-term since it is funding preventative social programs that work rather than funding rehabilitation and justice programs on top of earlier social programs that did not work.

Such Social Impact Bonds have been initiated on a small scale in several states with programs that target a particular demographic and align with certain focused outcomes. While a broad offering of such government investment may be years away, the idea of such private-public partnership is fascinating.

An instinctual response may kick in to uphold a more genuine purpose of education. If so, you may dismiss the idea based on the understanding that students are not products being manufactured off an assembly line. You may be concerned that such an arrangement could compromise education as the investor would be advocating for short-cuts and decisions based on the outcome and the bottom-line rather than truly educate students to be curious, creative, loving human beings who are life-long learners. This reaction is understandable and as with most innovation, intent and execution of the idea are important responsibilities.

I take a moment, though, to think about its application for our schools (which are non-tuition driven, do not access significant public funding, and depend upon the generosity of individuals, foundations and corporations to enroll students and families who otherwise would not have access to a quality, faith-based education). What I particularly appreciate is the emphasis on educational outcomes to drive funding rather than educational inputs. High school graduation, post-secondary completion and stable employment are clear, measurable outcomes that benefit the common good. If a school (or Coalition of schools!) is making good on this promise, there should be a public mechanism for keeping that education accessible to the public.

If in five to ten years, our schools received public funding based on the number our students that have graduated from college or a specialized post-secondary program then we would be able to continue to offer such an education to the next generation of students coming along. Even without a dividend, private donors would see the value of an investment that is essentially matched by government funding. Understanding that public funding is a steep hill to climb, the framework of the Social Impact Bonds may also resonate with a private donor who values the educational outcomes achieved by our schools across the country and would be moved to establish a national fund that is activated if and only if certain expectations are met. As such, our success with future generations of students is directly dependent upon the successful education of this generation of students.

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