Impact Bonds Risks and Concerns

But how much has this social financial innovation been useful to the needy?

Goldman Sachs “Massachusetts Juvenile Justice SIB, one of the largest in the world took 1100 hours of consulting time” | OECD

Impact bonds are a recent financial innovation within the international development sector. They have high transaction costs i.e. set up costs, technical assistance, and legal costs. Some of the bonds have proved to be successful and effective example Educate Girls, still, investors remain apprehensive. They are open to regulatory & policy risks due to long-term duration, for example, Peterborough Prison. The bonds target long-term outcome that needs interventions implemented by experts and constant monitoring for impact evaluation with a stable political and regulatory environment. Wildlife conservation bond implemented in South Africa targeting conservation and growth of black rhinos is open to political and macro risk due to disruption of biodiversity etc. The cost savings to the government is limited by the risk of cheery picking locality or easier key performance indicators. These bonds lack counterfactual for national run outcomes for scaling up outcomes that can be measured through randomized controlled trials. The video mentions random control trials, correct would be randomized controlled trials.

Impact Bonds are still a long way away from making a sustainable impact within the development ecosystem.

Key Enablers

• Standardization will bring down costs e.g. rate card London
• Development of Policy ecosystem* which enables PPP with a well-developed digital matrix of data, intermediaries and service providers
• Sophisticated investors with a benevolent mindset
• Needs a buy in at national level with policies backing the initiative
• Risk of misuse by investors

Video : The middle Road

The cost savings to the government is limited by the risk of cheery picking locality or easier key performance indicators. These bonds lack counterfactual for national run outcomes for scaling up outcomes that are measured through randomized controlled trials. The video mentions random control trials, correct would be randomized controlled trials. According to the Brookings article, What is the size and scope of the impact bonds market? the average number of beneficiaries per bond was 11788 with India having 40 percent of these beneficiaries. 

It is recommended to watch “The invisible heart” documentary. It takes a critical look at these instruments