Social Impact Financing

Cabinet Office UK

A social impact bond (SIB) is a contract with the public sector or governing authority, whereby it pays for better social outcomes in certain areas and passes on part of the savings achieved to investors. A social impact bond is not a “bond”, per se, since repayment and return on investment are contingent upon the achievement of desired social outcomes: if the objectives are not achieved, investors receive neither a return nor repayment of principal. SIBs are increasingly being piloted as additional funding mechanisms to existing government support for improving public health and launching new health promoting initiatives.


SIBs derive their name from the fact that their investors are typically those who are interested in not just the financial return on their investment, but also in its social impact. SIBs are a new mechanism providing investment to address social challenges, including health promotion and disease prevention. The mechanism can be visualised through the social impact bond diagram. In straightforward language, SIBs can be understood as a loan made by an investor, where repayment is linked to the achievement of specific agreed-upon health (or social) outcomes.

Considering the potential risks of social impact bonds

While social impact bonds are clearly an exciting new avenue to introduce innovations and improvements into the delivery and funding of health promoting services, they do not come without risks. Care must be taken that promising new funding instruments like SIBs do not result in ‘cherry picking’ or ‘creaming', which is targeting the ‘easiest’ participants or results to support to the detriment of the rest of the participants or programme. This type of perverse incentive can be avoided through careful design and service specification.


In addition, SIBs should never replace mainstream public funding and responsibilities of national, regional and local governments. However, they are well placed to pilot actions and interventions in order to demonstrate effectiveness, and secure more traditional funding for the long term and for scaling up. They can also be utilised to boost investment into health promotion and prevention measures by sharing the risk between public and private investors.

More information about Social Impact Financing is available on the Reports & Publications page.

Case studies