Social impact bonds: can private finance rescue public programs?

This paper examines the recent phenomenon of social impact bonds as a means of financing public programmes, particularly the implications of this innovation for accounting and accountability. Social impact bonds are an attempt to recruit private sector funds to pay for social programmes. These funds are structured as a bond, with a return on investment paid for by the state, but conditional on the programme attaining certain specified performance goals. Typically, if these goals are not met, the state does not pay the bond interest and the amount invested is lost. This financial innovation carries with it numerous assumptions about the role of the state, and can be regarded as a new attempt to manage the roles of the state, the private sector, and the charitable sector under neoliberalism. The mechanism of social impact bonds explicitly relies on performance measurement and financial incentives to arrange and demonstrate accountability for social outcomes. As such, it is a potentially powerful and potentially problematic use of accounting to enact government policy. This paper examines a specific, early case in which St. Mungo’s, a London-based charitable foundation, has undertaken to alleviate homelessness in the United Kingdom. The case is interesting because the problem of homelessness is traditionally regarded as somewhat intransigent, so the success of the new financing initiative relies on the ability of private finance to increase the incentives for innovation within the charitable sector, and the ability of the charitable sector to demonstrate their performance through accounting measures.