Interview with Author of McKinsey Report on Social Impact Bonds
Karabi Acharya, Forbes

When social entrepreneurs have developed a program, demonstrated its effectiveness, and are ready to take it to scale, what do they do? Social Impact Bonds (SIBs) may be one solution to the challenge of securing sufficient multi-year funding to make a preventive program available to all who can benefit. A SIB is "… a new approach for expanding social programs. It is a partnership in which private investors — not governments — provide capital for non-profits to scale up. The government pays only if the program succeeds." We caught up with Laura Callanan from McKinsey & Company's Social Sector Office to talk about her recent report, "From Potential to Action: Bringing Social Impact Bonds to the US."

Why are Social Impact Bonds a useful model for scaling proven social programs?

SIBs fill a gap between philanthropy and government. Philanthropy is the risk capital of the social sector — it pays for research and early pilots. But philanthropy does not have sufficient resources to take programs to scale, making them available to everyone who needs them. Only government has that level of resources. But government's budget is currently tied up in legacy programs, many of which are remedial in nature. This means new preventive innovations, better programs often don't get resources and are being under-utilized.

SIBs structure the handoff from philanthropy to government. Philanthropy and other impact investors provide upfront capital to scale a proven program and government actively watches the program, seeing how it goes. When the less expensive, more effective preventive program works, then the system saves money and government pays the investors back — but only if there are results. Hopefully when SIB-funded programs are successful government is motivated to take the rest of the savings to fund more of what works, save more over the current remedial programs, and realign the system to fund more proven preventive programs. Read more. (7/12/12)