Business and Management
Submitted By lillianzhy
1. How do the proposed Social Impact Bonds work?
Social Impact Bonds are developed as a risk-free way for government to pursue social programs. The process involves five participants: governments, intermediaries, investors, service providers and independent evaluators. Firstly, governments define problems that they want to address. In order to show the feasibility of the decision, governments need to clarify several issues, such as the target population and their need. Also, they are required to analyze the budget and identify an appropriate outcome.
After that, governments need to enter a contractual agreement with an intermediary. The intermediary will find outside investors such as banks and individuals to invest in the program. It also needs to hire a non-profit service provider to conduct the program. Then, the independent evaluator will judge whether the outcome meets the standard or not. If the outcome of the program is satisfying and reach the standard of the appropriate outcome that has been set by governments before, governments will repay investors with required return as the result of the successful program (Pettus, 2013).
2. How should Social Finance structure the financial instrument: as a bond? As equity? As some hybrid?
In my opinion, the way that Social Finance structures the financial instrument depends on the aims of investors that are attracted. There are three types of investors of Social Impact Bonds. The first group of investors is known as financial-first investors. They invest in Social Impact Bonds to seek financial return. For this type of investors, Social Impact Bonds are seen as bonds that can offer return without letting them consider the operation of social programs that they invest in. Investors lend money to the government to support social programs and when the outcome meets the standard, the government will pay the…...