HUB-IN Interviews | Talking Social Impact Bonds

HUB-IN Interviews: A focus on the Financing Models for Historic Urban Area (HUAs) projects

Novel opportunities emerge as the heritage regeneration financing landscape evolves. When looking at past and current projects, financing comes predominantly from classic public and private funding sources. Yet as we will discover that crowdfunding and community funding are increasingly becoming a part of the funding mix.

HUB-IN Places dare to experiment with new financial structures, combining traditional public funding streams with other (private) sources of funding. In creating novel financial structures, HUB-IN cities carefully balance potential shifts in the distribution of power and influence, contributing to their city’s inclusive and sustainable development.

Today’s Expert: Björn Vennema from Social Finance NL

Social Finance NL – The Social Finance NL (SFNL) team is dedicated to mobilizing capital and talent to drive social progress. Through outcomes-based financing strategies, SFNL works to disrupt the status quo, shifting mindsets to align resources with impact.

Social Finance is supporting the Palestinian Authority, World Bank & DAI on a Development Impact Bond to open up employment opportunities for Palestinian women and youth. The Impact Bond is a component of the wider Finance for Jobs initiative, a four-year economic development program of the Palestinian Ministry of Finance and Planning. Funded by the World Bank, which supports innovative financing approaches to jump-start job creation in the West Bank and Gaza.

How to apply an impact bond to urban heritage regeneration?

You could have a hybrid system. (1) Financing the real estate based on its rising value. You could make a deal that the area developer invests an amount at 0% interest, but 100% fixed value, and that based on the impact, an interest is paid on that amount, but only if there is an impact. This avoids land speculation. (2) Something needs to be happening there, which creates value, which we could do based on outcomes such as numbers of visitors, education programs or such. That could be an impact bond. So using the impact bond to finance what is happening, not the real estate as such.

How is the governance of a social impact bond organised?

Usually a special purpose vehicle is set-up to operate the social impact bonds. This is where the money flows through. Usually this is a foundation. Often the board has representatives from the various partners. The entrepreneurs who will do the exploitation.

Are social impact bonds a feasible financing model across the EU?

We are running a project in Lithuania. Impact bonds are even newer there. Innovative financing structures are not known, and there is not a market of impact investors. Only a few philanthropists. It is difficult because the market has not yet developed. This is the same for many European countries. In The Netherlands we have a lot of structure, institutions and a market more ready to give this a go.

Focus : Social Impact Bond

Also known as the Pay-for-Success model, is a groundbreaking approach to financing effective social programs. In essence, the Social Impact Bond is a performance-based contract between social service providers, investors, governments and other stakeholders. This contract stipulates that capital invested in a specific social service program will be returned to investors by the government, or another stakeholder, only if predetermined social outcomes are achieved. These contracts are based on the work of SFI and contracting parties to quantify the economic value of resolving a social need, define how positive outcomes will be measured, and launch an effective intervention program.

Ultimately, investor returns are generated in accordance with the rate at which the service program achieves predetermined outcomes. This innovative model has ushered in new sources of private capital, mobilizing it towards solving social issues, achieving positive social outcomes and generating value for the public sector.

In 2010, the first Social Impact Bond was developed by Social Finance UK in order to reduce recidivism rates of short term offenders in Peterborough. Since then, over 100 Social Impact Bonds have been launched in dozens of countries in Europe, Asia, Australia and both North and South America. These Social Impact Bonds are centered on a variety of issues, including welfare, education, health, housing and employment.

Learn more on the Social Impact Bonds Database website