Social impact bonds and small organisations – solution or nemesis?

Third sector organisations are increasingly seeking to understand social impact bonds and how they can be made to work in a variety of contexts. This interest is often prompted by the reduction or withdrawal of previous funding streams and an attempt to achieve the holy grail of sustainability, freedom from annual funding cycles and dependency on others' agendas. The challenges are evident to all third sector organisations, but affect the smallest hardest.

Piloted by the Ministry of Justice at Peterborough Prison, the social impact bond model shifts the financial risk of success or failure from those responsible for ensuring the delivery of services to private investors. It relies on successful interventions saving the public purse money and a body holding those purse strings being satisfied about the savings it can make if agreed impact is delivered. If delivery is successful, funding is released and investors recoup their investment and its returns. If it is unsuccessful, the investor receives nothing. In the interim, delivery agencies are funded and have clarity about what they are required to achieve and the length of time they have to achieve it. The model is now being tested out in a number of other contexts.

Although the long-term aim of every charity is to put itself out of business, i.e solve the problems it has been established to address, the reality is that the depth of need requires charities to look at how they survive into the future to continue their work. Much time and resource is expended to secure funding for future activity.

Small organisations often work at the margins, among people and in situations larger groups find it difficult to reach or sustain contact with. The smaller the organisation, the higher the percentage of its resource applied in achieving sustainability and so the less resource is available to meet the needs of its beneficiaries.

The problems for small organisations in the social impact bond world are similar to the problems in every other funding regime which they seek to navigate. The challenges include:

• Negotiating with public bodies requires time, skills and probably pre-existing contacts. Generally public bodies do not want to deal with a myriad of small contractors, preferring to find an intermediary organisation to deal with
• Releasing the resource to pitch compromises service delivery
• Demonstrating impact for social impact bonds is a complex and evolving art (or is it a science?) and reframing and presenting what an organisation does for the purposes of any given contract requires skills and tools which not every organisation has access to
• Outputs are measured in volume and often do not allow additional funds for difficult situations.

If small organisations are to avail themselves of opportunities which arise through social impact bonds they need to be able to collaborate with other organisations. Effective collaboration enables each party to use a smaller proportion of its resource to carry the administrative burden of engaging with this emerging market place and gives credibility in negotiations with public bodies and investors alike. Rather than waiting for top-down initiatives, news of which may trickle through networks as a fait accompli, collaborative working opens up the possibility of service deliverers identifying what they can achieve in their unique contexts and offering it to those ultimately accountable for delivery.

Collaboration requires trust and careful agreements that produce balanced, not exploitative relationships. The control of commissions and contracts by large organisations generates much scepticism in the sector about how open the much talked about "big society" really is. While initiatives are top down they miss the opportunity to work with local and contextualised knowledge which reaches into the heart of social problems crippling communities.

Pie in the sky? Well maybe, but the evidence internationally of the last year is that new forms of collective action can at the very least challenge, and in some cases change, apparently immovable systems. Small organisations often feel as if they are at the mercy of the larger organisations which are networked into the "right" places and have the infrastructure to support a range of activities.

There is undoubtedly a need for public bodies and larger organisations to work out how to set up transparent networks and accessible systems. In the meantime many in urgent need do not receive support and the impact on our communities deepens. If small organisations can find ways of collaborating to act collectively in relation to, for example, social impact bonds, maybe they can change the way funding regimes look, feel and work. If they cannot, diverting energy into accessing funds through this form of social investment may prove their downfall.

For more information

Sarah Hayes was a consultant for Anthony Collins Solicitors LLP. For more information, contact Shivaji Shiva on 0121 214 3681 or shivaji.shiva@anthonycollins.com.

First published in the Guardian online on 15th February 2012 - to view the article, click here.