Profitable Impact Bonds: Introducing Risk-Sharing Mechanisms for a More Balanced Version of Social Impact Bonds

A cura della Dottoressa Giulia Proietti, PhD in Diritto Commerciale e Notaio.

Abstract.

Social Impact Bonds are a mixed partnership between Public and Private, conceived as a possible solution to convey new resources into welfare expenses and to address public budget contractions. The financial scheme has created great interest in the last decade and there are many reasons to justify this excitement (Berndt & Wirth, 2018). Notwithstanding the undeniable advantages, SIBs still present numerous downfalls which impede the spread of an authentic financial market of the product. This article focuses on these limitations and offers a possible alternative to preserve the good elements of SIBs.

One of the main weaknesses of the scheme has been the imbalance of exposure between the actors involved. While governments and Social Providers bear almost no economic risks, with the exception of risks to reputation, investors are required to put capital into a highly unpredictable program with low control over their investment. The paradox of SIBs is that the repayment of investors depends entirely on the performance of a party (or the Social Provider) which has no financial repercussions for failure or a stringent economic interest in obtaining a favourable result. To this end, this article aims at introducing some modifications to the financial scheme; to transform the risk for investors from risks of performance into risks of credit; to redistribute both exposure and benefits between the parties involved. The article also encourages the choice of Social

Providers among corporations and hybrid entities which are fit to be parties of a financial scheme, combining the creation of social impact with the production of revenue. Thanks to these modifications, SIBs could become an effective tool to raise capital for innovative enterprises that are capable of demonstrating their social impact in terms of public budget reduction, while pursuing a profit. This use of the financial scheme could encourage a new form of inspired capitalism, laying the foundation for a socially oriented economic market.

Articolo pubblicato in volume, disponibile al seguente link: https://econpapers.repec.org/bookchap/palpsifcp/978-3-030-40248-8_5f4.htm