/ Impact Funding / by Stefan Shaw

A difficult birth ― Lessons from the first Social Impact Bond in Germany

The first German Social Impact Bond has been completed. The agreed objectives were achieved. The loans from financiers are being paid back. So did everything go smoothly?

Not entirely. It was quite stressful and we came very close to missing our targets. In order to make it easier for future Social Impact Bonds to come into existence and survive, here are the important lessons that we learned from our mistakes and the ensuing difficult birth.

1. Call it what it is
Public communication regarding the Social Impact Bond (SIB) lagged several months behind the actual project. This caused all project participants to feel uncertain and impeded their work. In order for a SIB to be successful, it is necessary for all participants ― including the governmental institutions ― to be able to publicly communicate that they are implementing a Social Impact Bond from the very beginning. Call it what it is.

2. The journey is part of the destination
It took a lot of time ― too much, actually ― to coordinate with the local project partners to figure out who was supposed to implement what in order achieve the specified objectives. We understood too late that we could not leave this process up to the partners, but needed to actively guide this process. In order for there to be successful cooperation between the project partners in a SIB, it is necessary to have a definitive assignment of responsibilities and clear leadership. The journey is part of the destination.

3. Success controls replace process controls
During the course of the project, the SIB was repeatedly at risk of reverting to old ways. Instead of consistently focusing on whether the objectives were being achieved, there was a focus on the traditional “how” of achieving objectives. For example, there were discussions on whether the work with individual participants was “difficult enough.” Yet a Social Impact Bond can only work if there is a binding agreement to have success controls that replace process controls, rather than simply supplementing them. If this cannot be done, then the project partners in a SIB will have twice the work instead of only having to keep their documents in order without success controls as has previously been the case. Success controls replace process controls.

4. There are degrees of success
In the context of the objectives for the Social Impact Bond, a digital target threshold had been defined that could only be fully crossed (= full payment) or missed (= no payment). Nevertheless, there need to be degrees in measuring the achievement of objectives to account for the fact that every single success counts within the context of a SIB. For example, if the goal of having an effective impact on 100 people means that the governmental institutions will repay 100% of the funded amount, then if the project has an effective impact on 90 people, this shouldn’t result in a total loss; instead, 90% of the funded amount should be repaid. There are degrees of success.

5. Be pragmatic
A key challenge in any SIB is to set down measurable target criteria as precisely as possible before the project starts. However, our experience has shown that it is not possible to set in stone the documentation of the target criteria. There is always a chance that some details will have to change during the course of the project. It is important in such cases – as in all areas of life – to be pragmatic. The aim must be to follow the previously set targets but also to ensure that the documentation of target fulfilment should use up as few of our project partner’s resources as possible. After all, the project partners should have only one main task: to work with the target group as effectively as possible. Be pragmatic!

6. Success takes time
For the specified objectives, the Social Impact Bond had a very short operational duration of 2 years and 4 months. Launching and successfully implementing the project within this period of time was almost impossible. The fact that the objectives were narrowly achieved by the end of the Social Impact Bond can thus be attributed to the short timeframe allotted for the project. It also started at an unfavorable time for one of the main objectives of the project: placement in a vocational training program. However, the success of a SIB should not be determined by whether success occurs as soon as possible, but by whether success occurs at all and then has a lasting impact. Defining a timeframe for a SIB should thus always focus on the main objectives and the target group to be reached. Success takes time.